With penalties, restrictions, RBI turns up heat on lax KYC

KYC is a critical weapon in the battle against money laundering and financial fraud

- Shayan Ghosh Neil Borate MUMBAI

The Reserve Bank of India RBI) has been focused on plugging gaps in implementing know-your-customer KYC) checks by lenders and other regulated entities, chastising them through monetary penalties and even imposing business restrictions.

Some of the recent instances include restrictions on Paytm Payments Bank, and most recently, on business payment solutions providers BPSPs, typically fintech companies). Even in October, RBI had fined the payments bank 35.39 crore for non-compliance with some provisions of KYC guidelines, cybersecurity framework, etc.

Others have not been spared either. Through the past year, the regulator has pulled up larger lenders like Axis Bank and Standard Chartered Bank, apart from a clutch of cooperative banks.

KYC guidelines act as a vital safeguard against money laundering, by mapping each account to a bona fide customer. It mandates banks and other lenders to ask for proof of address and identity from customers before opening bank accounts or even while availing loans.

People aware of the development said that the common thread tying RBI’s action against Paytm Payments Bank and asking Visa to stop businesses from paying each other via credit cards is lack of strong KYC implementation.